State Agency Discretion and Entrepreneurship

Shon Hiatt and Jake Grandy (MOR alumnus) just had an article accepted by ASQ,  Congratulations, Jake and Shon!

January 20, 2020

In addition, Jake just accepted a new position and will be moving from Cal State Long Beach to the University of Arkansas’ Walton School of Business this May as an assistant professor. Congratulations, Jake!

STATE AGENCY DISCRETION AND ENTREPRENEURSHIP IN REGULATED MARKETS

Abstract

Barriers to entry in regulated markets are frequently conceptualized as static features that must be removed or overcome if new entrants are to successfully enter a market. However, government institutions regulating markets often comprise multiple levels that exist in tension with one another due to differing incentives and motivations. We argue that the principal-agent tension between elected officials and agency bureaucrats may render regulatory barriers to entry more malleable, even in the absence of formal policy changes. To test this proposition, we bring the administrative state center stage and examine how regulatory discretion—regulatory agencies’ flexibility to interpret and implement public policies created by elected officials—can influence market entry of new ventures. Using data on regulatory approval of hydroelectric facilities in the United States from 1978 to 2014, we find that increased state agency discretion and improves outcomes for new ventures relative to incumbent firms by freeing regulatory agency officials to interpret and implement policies according to a professional motivation of public service and reducing incumbents’ political influence.